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HomeMy WebLinkAboutCAO-06-013 - Centre Block RedevelopmentReport To: Mayor Zehrand Members of Council Date of Meeting: February 13, 2006 Submitted By: KPL -Centre Block Project Committee Prepared By: Rod Regier, Executive Director Economic Development Hans Gross, Director of Project Administration & Economic Investment Ward(s) Involved: 1 Date of Report: February 10, 2006 Report No.: CAO-06-013 Subject: CENTRE BLOCK REDEVELOPMENT RECOMMENDATION: 1. That Clause 4(c) of the February 13, 2006 Finance and Corporate Services Committee recommendation be deferred until February 27, 2006 to allow for consultation with Heritage Kitchener in regard to the two remaining buildings associated with the Forsyth building complex; and further, 2. That Clause 7(f) of the February 13, 2006 Finance and Corporate Services Committee recommendation be replaced in its entirety with the following: That the Request for Expressions of Interest/Proposal for the Centre Block redevelopment be prepared on the basis that the estimated shortfall of $8.5million for the 350 space municipal parking structure will be funded through the issuance of a debenture within the City Parking Operation; and further That staff be directed to report back to Finance and Corporate Services Committee no later than May 31, 2006 with a business plan to evaluate the feasibility of establishing the City Parking Operation as a true Enterprise unit (i.e., no property tax support for operating or capital expenditures); and 3. That Clause 7(g) of the February 13, 2006 Finance and Corporate Services Committee recommendation be replaced in its entirety with the following: That the City of Kitchener not enter into the role of guarantor for securing the $5M targeted fundraising amount to be achieved by the Kitchener Public Library Board. BACKGROUND: Heritage Kitchener held their regular meeting on February 7, 2006 to discuss, among other business, Recommendation #3 contained in Report No. CAO-06-009 which recommended the removal of the two remaining buildings on the Forsyth complex. Shortly after the start of the meeting, it was interrupted as a result of a declared emergency at City Hall. The Heritage Kitchener meeting has been rescheduled to February 16, 2006. The Committee's comments and recommendations will be presented at Council's February 27, 2006 meeting. The Centre Block Redevelopment Report CAO-06-009, which was discussed at the February 6, 2006 Finance and Corporate Services Committee, contained two recommendations (#9 & #10) which were deferred and referred to the February 13, 2006 Council meeting to allow additional information and options to be provided. REPORT: Centre Block Parking On February 6, 2006 the Finance and Corporate Services Committee deferred a decision on the preferred option for funding the estimated shortfall of $8.5 million for the 350 space municipal parking structure on Centre Block to allow for further analysis of the options. The funding options identified in report CAO-06-009 were: 1. City Debenture 2. Developer FundedlCity Operation 3. Developer Funded and Operated Under Options 2 and 3, the City would be obligated at the end of the term (i.e., 20 years} to provide the developer with alump-sum payout for any capital costs and carrying charges not already recovered through annual net revenues. These options would likely lead to a higher ultimate cost to the City as it is not reasonable to assume that the carrying cost and expected return for a developer would be less than financing rates currently available to the City. As well, there would be significant difficulty inherent in establishing the final lump-sum payment under a developer-operated model as the reasonableness of reported net revenue may be subject to dispute. As an alternative, we are recommending that we pursue Option #1, a debenture, through the creation of a formal Parking Enterprise. The issuance of a debenture within the City Parking Operation is consistent with principles Council adopted at their May 20, 2003 meeting for the operation of the City's parking portfolio, specifically: 1. The City should continue in the parking business 2. Parking should operate as an enterprise providing a return on investment 3. Parking subsidies should be considered economic development tools and be accounted for accordingly As a municipal enterprise, any debt incurred by the Parking Operation would be funded through user rates. Currently, capital expenditures for the Parking Operation are funded from the capital out of current pool. Staff are in the process of assessing the general financial implications of establishing the Parking Operation as a full municipal enterprise and will report back to Council prior to the approval of the RFP document anticipated on March 20, 2006. The preliminary analysis will be followed up by the presentation of a formal business plan prior to May 31, 2006. As such, Council will be in a position to consider and approve the future structure of the Parking Operation in advance of the consideration of Centre Block proposals (including the parking component). It should be noted that establishing the Parking Operation as a formal Enterprise could have the following impacts: • A one-time budget increase to remove net operating revenues from the tax-supported budget; • Adjustments to parking rates to move to a full cost-recovery model; and • Timing of development of additional parking facilities (i.e., Charles and Water structure) will be subject to the availability of Enterprise funds However, separating the Parking Operation from the tax-supported budget has the potential to improve the management and business operations of the program over the long term and will reduce the overall property tax burden as future capital costs will no longer be funded through the tax base and the Enterprise may, in fact, be in a position to pay a dividend to the tax- supportedbudget. These issues will be addressed on a preliminary basis prior to March 20, 2006 and in detail as part of the development of the business plan presented later in the year. Guarantor for Fundraising The KPUCentre Block Project Committee at their February 9, 2006 meeting discussed the benefits and drawbacks of finding a guarantor for the $5M fundraising target suggested by the Kitchener Public Library Board. The intent of having a guarantor is to create certainty around the total funds available for the construction of the library. The benefit of having a private guarantor is the certainty that it brings to the funding for the library and the enthusiasm that it creates for additional fundraising efforts. With the City acting as guarantor, it was felt that the incentive for fundraising from the private sector would be greatly diminished. On this basis the Committee is recommending that the City not enter into the role of guarantor for the fundraising component of this project. FINANCIAL IMPLICATIONS: The financial implications are discussed in the body of the report. COMMUNICATION: Minutes of the KPL /Centre Block Steering Committee meetings are available and have been posted on the City's website and the meetings are open to the public. CONCLUSION: Certainty around the funding for the parking structure is critical to the financial viability of this project. Hans Gross, Director of Project Administration Rod Regier, Executive Director & Economic Investment Economic Development